Publication Date

1-1992

Journal

North Carolina Law Review

Abstract

In any complex bankruptcy proceeding one of the most poignant questions facing the parties and the court is who must pay the trustee's expenses. In addition to routine administrative costs, such expenses may include costs of disposing of estate assets, or, in reorganization proceedings, expenses necessary to preserve the assets and going-concern value of the debtor's business. In this Article, Professor David Gray Carlson undertakes a comprehensive examination of the law of bankruptcy expense allocation through the lens of Bankruptcy Code section 506(c), the trustee's principle tool for charging expenses to secured creditors. After a careful examination of priority and collateral valuation issues under section 506(c), Professor Carlson suggests a rule for Chapter 11 reorganizations by which expenses properly allocable to secured creditors can be distinguished from ordinary expenses of reorganization traditionally borne by unsecured parties. Specifically, he suggests that secured creditors whose liens encumber a debtor's entire cash flow should bear any costs in excess of debtor equity associated with preserving that income. Among secured parties whose liens do not reach cash flow, Professor Carlson suggests charging only that portion of maintenance expense that does not exceed a proper valuation of the secured party's collateral The Article concludes by testing the proposed rule against holdings in several bankruptcy cases.

Volume

70

Issue

2

First Page

417

Last Page

492

Publisher

University of North Carolina School of Law

Disciplines

Bankruptcy Law | Law

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